The answer to that question ought to be an emphatic “No.” Public universities (and all other governmental institutions) have financial advantages over private enterprise in that they can obtain low-cost or free capital from the taxpayers and don’t pay taxes.

Accordingly, many states have laws meant to prevent public institutions from competing against private business. North Carolina has had such a law, the Umstead Act, on the books since 1929.

The problem is that public universities have discovered a way around the law. They don’t go into business, but their foundations do. In today’s Martin Center article, Shannon Watkins shows how this ploy works, focusing on a big hotel the University of North Carolina at Charlotte plans to put up, with slight participation by Marriott.

She writes,

To finance the project, the UNC Charlotte Foundation aims to raise $20 million via fundraising, in addition to borrowing $45 million. Marriott will only be contributing $2 million. The hotel and conference center will be built on land owned by the foundation right next to UNC-Charlotte’s campus. Although the university’s direct participation in the project is minimal, it donated 0.7 acres of land to provide a walkway plaza connecting the hotel to the nearby light rail.

Under the law, public universities may operate hotels and restaurants only if they obtain permission from the state legislature, but this project has gone ahead without it.

These university foundations are not subject to the open-meetings act and are usually stuffed with top administrators from their schools. There’s no reason to think they’ll operate in the public interest. Watkins quotes a member of the UNC Board of Governors who finds that university foundations are not “subject to any meaningful public accountability.”

And why does a university need to run a hotel anyway? If there is more demand for hotel rooms in Charlotte, private hospitality companies will no doubt respond.

Watkins concludes,

For the time being, it seems that UNC-Charlotte and the other UNC campuses will continue to be able to have their cake and eat it too — simultaneously exploiting legal loopholes and dodging basic forms of accountability. This may be something the UNC system Board of Governors — or even the state legislature — should explore further to decrease the potential for abuses of the system’s ethical standards.